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Kathmandu Holdings Limited: Up 11% on Positive Trading Update

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Kathmandu Holdings Limited (ASX: KMD) is a transnational chain of retail stores, selling travel and outdoor apparel and equipment. Kathmandu announced (1 October 2019) its acquisition of iconic Australian surf brand Rip Curl resulting in the brand becoming a retail leader of clothing and equipment for travel and adventure in Australia and New Zealand. Kathmandu has a market capitalisation of A$701 million.




What has Kathmandu announced today?

Kathmandu announced a market update today. Kathmandu reported that Rip Curl same store sales (for the last six full weeks 18 May to 28 June 2020) is up 21%. This is comprised of retail stores sales being up 5.1% and online sales up 151%. Kathmandu same store sales (for the last six full weeks 18 May to 28 June 2020) is up 12.5%. This is comprised of retail stores sales being up 2.2% and online sales up 78%.

The positive news around this announcement is that both Kathmandu and Rip curl stores have reported strong online sales growth during the pandemic. In addition, as lockdown restrictions are no being eased, the majority of the Group’s stores have re-opened, with exceptions being at airports.

In April, the Group completed a successful NZ$207 million equity raising to strengthen its balance sheet and liquidity position in response to the COVID-19 pandemic. Based on the Group’s current assessment, it is expected that available liquidity will be in excess of $300 million by end FY20.

What is the outlook?

Based on the current economic conditions, Kathmandu’s management expects FY20 EBITDA to be above $70 million. However, it is important to note that economic and health conditions can change quickly. For example, there are worrying concerns around a spike in COVID-19 cases in Victoria.

Despite Kathmandu's share price down 22.3% over the past month, the retail brand is in a sound position during this difficult trading situation. Kathmandu possesses satisfactory inventory levels for the forthcoming seasons for all brands, assisted by longer lead time of technical product categories and a diversified supplier base. Due to Kathmandu’s recent acquisitions in supply chains and implementing a channel-agnostic approach, especially online fulfilment compatibles (as shown from this result), the retail brand will be able to assist and continue serve customer needs despite ongoing government restrictions on the operation of retail outlets in certain regions (such Victoria).

What is the market reaction?

The market reaction to Kathmandu’s announcement today is positive. Kathmandu is up around 11% and is currently trading at A$1.19. This market reaction is positive as the Australian market is only up around 0.5% today. Kathmandu is trading at a forward P/E ratio of 6x and has an annual dividend yield of around 10% (based on FY19 dividend payment).



This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
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ASR has no position in any of the stocks mentioned.

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